Capital Flows, Cross-Border Banking and Global Liquidity. May 2012

Transcription

1 Capital Flows, Cross-Border Banking and Global Liquidity Valentina Bruno Hyun Song Shin May 2012

2 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 1 Gross Capital Flows Capital flows driven by real (saving & investment) decisions? Gross versus net flows [L]arge gross financial flows entail potential stability risks that may be only distantly related, if related at all, to the global configuration of saving-investment discrepancies. Maurice Obstfeld (2012 Ely Lecture)

3 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 2 Trillion Dollars Liabilities: Foreign official assets in United States (line 56) Liabilities: Foreign claims on U.S. non-banks (line 68) Liabilities: Foreign claims on U.S. banks and securities brokers (line 69) Liabilities: Foreign private holding of U.S. securities other than Treasurys (line 66) Assets: US holding of foreign securities (line 52) Assets: Claims of U.S. nonbanks on foreigners (line 53) Assets: Claims of U.S. banks and securities brokers on foreigners (line 54) Figure 1. US gross capital flows by category (Source: US Bureau of Economic Analysis). Increase in US liability to foreigners is indicated by positive bar, increase in US claims on foreigners is indicated by negative bar.

4 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 3 Banking sector capital flows VIX VIX Index (average over quarter) Banking Sector Capital Flows (year on year growth of external claims of BIS-reporting banks) Sep-11 Dec-10 Mar-10 Jun-09 Sep-08 Dec-07 Mar-07 Jun-06 Sep-05 Dec-04 Mar-04 Jun-03 Sep-02 Dec-01 Mar-01 Jun-00 Sep-99 Dec-98 Mar-98 Jun-97 Sep-96 Figure 2. This figure plots cross-border banking sector capital flows as year-on-year growth in external claims of BIS-reporting banks (Table 7A). The VIX series is the quarterly average of CBOE VIX index.

5 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 4 Landscape of Global Banking Regional Bank Global Bank A L A L Local Borrowers Stage 3 Stage 2 Stage 1 Wholesale Funding Market Figure 3. Three stages of cross-border banking sector flows.

6 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 5 Net interoffice assets Large time deposits Borrowings from banks in U.S. Borrowings from others Securities Loans and leases Cash assets Trillion dollars Nov May Oct Apr Sep Mar Sep Feb Aug Jan Jul Dec Jun Dec May Nov Apr Oct Mar Sep Feb Aug Feb Jul Jan-99 Figure 4. Assets and liabilities of foreign banks in the U.S. (Source: Federal Reserve H8 weekly series on assets and liabilities of foreign-related institutions)

7 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity Billion dollars 400 Net interoffice assets of foreign banks in US Nov Nov Oct Sep Aug Jul Jun May Apr Apr Mar Feb Jan Dec Nov Oct Sep Sep Aug Jul Jun May Apr-88 Figure 5. Net interoffice assets of foreign banks in U.S. given by negative of Federal Reserve weekly H8 series on net due to related foreign offices of foreign-related institutions

8 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 7 Figure 6. US Dollar-denominated assets and liabilities of euro area banks (Source: ECB Financial Stability Review, June 2011, p. 102)

9 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 8 (%) Asia United States Other Europe Other euro area H H H H H H H H H H1 Belgium, Italy, Spain, Portugal, Ireland, Greece Figure 7. Amount owed by banks to US prime money market funds (% of total), based on top 10 prime MMFs, representing $755 bn of $1.66 trn total prime MMF assets (Source: IMF GFSR Sept 2011, data from Fitch).

10 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 9 Borrowers in A Banks in A Borrowers in B Banks in B Global Banks Wholesale Funding Market Banks in C Borrowers in C Figure 8. Topography of global liquidity

11 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 10 Borrowers in A Banks in A Borrowers in B Banks in B Global Banks Wholesale Funding Market Banks in C Borrowers in C Figure 9. Topography of global liquidity

12 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity Ireland Spain Turkey Australia South Korea Chile Brazil Egypt South Africa 0 Mar.2010 Mar.2009 Mar.2008 Mar.2007 Mar.2006 Mar.2005 Mar.2004 Mar.2003 Mar.2002 Mar.2001 Mar.2000 Mar.1999 Figure 10. External claims (loans and deposits) of BIS reporting banks on counterparties listed on right (Source: BIS locational banking statistics Table 7A)

13 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity Australia South Korea Indonesia Malaysia Thailand 50 0 Mar.2010 Mar.2009 Mar.2008 Mar.2007 Mar.2006 Mar.2005 Mar.2004 Mar.2003 Mar.2002 Mar.2001 Mar.2000 Mar.1999 Figure 11. External claims (loans and deposits) of BIS reporting banks on counterparties listed on right (Source: BIS locational banking statistics Table 7A)

14 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity Slovakia 600 Poland Ireland Spain Turkey Mar.2010 Mar.2009 Mar.2008 Mar.2007 Mar.2006 Mar.2005 Mar.2004 Mar.2003 Mar.2002 Mar.2001 Mar.2000 Mar.1999 Figure 12. External claims (loans and deposits) of BIS reporting banks on counterparties listed on right (Source: BIS locational banking statistics Table 7A)

15 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 14 3,000 2,500 2,000 Latvia 1,500 Lithuania 1,000 Estonia 500 Iceland Mar.2010 Mar.2009 Mar.2008 Mar.2007 Mar.2006 Mar.2005 Mar.2004 Mar.2003 Mar.2002 Mar.2001 Mar.2000 Mar.1999 Figure 13. External claims (loans and deposits) of BIS reporting banks on counterparties listed on right (Source: BIS locational banking statistics Table 7A)

16 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 15 Themes Double-decker model of credit supply Global banks and local banks Capital flows through banking sector Bank credit supply Leverage tied to risk measures (VIX, VaR, CDS) Deviation from standard portfolio rules Empirical hypotheses and investigation

17 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 16 Corporate Finance of Banking A L Equity Assets Debt

18 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 17 A L A L Assets Equity Debt Assets Equity Debt

19 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 18 A L A L Assets Equity Debt Assets Equity Debt

20 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 19 1,000 Barclays: annual changes in assets, equity, debt and risk-weighted assets ( ) Annual change in equity, debt and risk-weighted assets (billion pounds) y = x R 2 = y = x Equity Change Debt Change , ,000 Annual change in assets (billion pounds) Figure 14. Barclays: annual change in assets, equity and debt ( ) (Source: Bankscope)

21 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity BNP Paribas: annual change in assets, equity and debt ( ) 400 y = x R 2 = Change in equity and debt (billion euros) Debt Change Equity Change Asset change (billion euros) Figure 15. BNP Paribas: annual change in assets, equity and debt of ( ) (Source: Bankscope)

22 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity Societe Generale: annual changes in assets, equity and debt ( ) Annual change in equity and debt (billion euros) y = 0.996x R 2 = Debt change Equity change Annual asset change (billion euros) Figure 16. Societe Generale: annual change in assets, equity and debt of ( ) (Source: Bankscope)

23 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 22 1,000 Barclays: 2 year change in assets, equity, debt and risk-weighted assets ( ) 2 year change in equity, debt and risk-weighted assets (billion pounds) y = x R 2 = yr RWA Change 2yr Equity Change 2yr Debt Change -1,000-1, ,000 2 year asset change (billion pounds) Figure 17. Barclays: 2 year change in assets, equity and debt ( ) (Source: Bankscope)

24 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 23 Societe Generale: 2 year changes in assets, risk-weighted assets, equity and debt ( ) year change in risk-weighted assets, equity and debt (billion euros) y = x R 2 = y = x yr debt change 2yr equity change 2yr RWA change year asset change (billion euros) Figure 18. Societe Generale: 2 year change in assets, equity and debt of ( ) (Source: Bankscope)

25 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 24 Why did European banks expand so much? Two candidate hypotheses: Regulatory environment: circumvention of Basel I, impending Basel II and EU Capital Adequacy Directive (CAD) Advent of Euro opened up cross-border banking market within the eurozone

26 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 25 Goldman Sachs (1998Q2-2011Q2) Morgan Stanley (1996Q1-2011Q2) Quarterly Changes in Debt and Equity (Billion Dollars) y = x Q2 y = x R 2 = Equity -200 Change 2008Q Quarterly Change in Assets (Billion Dollars) Debt Change Quarterly Changes in Debt and Equity (Billion Dollars) Q4 y = x y = x R 2 = Debt Change Equity Change Quarterly Change in Assets (Billion Dollars) Figure 19. Scatter chart of quarterly changes in assets, equity and debt of Goldman Sachs and Morgan Stanley (Source: SEC 10Q filings)

27 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 26 Goldman Sachs (2001Q3-2011Q1) Morgan Stanley (2001Q3-2011Q1) Implied Volatility 6.0 Implied Volatility VIX Leverage VIX Standard deviations from pre-crisis mean 0.0 Standard deviations from pre-crisis mean -2.0 Leverage Sep-10 Dec-09 Mar-09 Jun-08 Sep-07 Dec-06 Mar-06 Jun-05 Sep-04 Dec-03 Mar-03 Jun-02 Sep-01 Sep-10 Dec-09 Mar-09 Jun-08 Sep-07 Dec-06 Mar-06 Jun-05 Sep-04 Dec-03 Mar-03 Jun-02 Sep-01 Figure 20. Plots of the VIX index, leverage of Goldman Sachs and Morgan Stanley and the implied volatility of their equity options. All series are measured as standard deviations from the mean during 2001Q3-2006Q4. (Source: SEC 10Q and CBOE)

28 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 27 Explaining Deleveraging Value at risk (VaR) at confidence level relative to some base level 0 is smallest non-negative number such that Prob ( 0 ) 1 Equity meets total Value-at-Risk (Adrian and Shin (2012)) = = is Unit VaR (Value-at-Risk per dollar of assets). Leverage satisfies = 1

29 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 28 Empirical implication: ln = ln so that ln ln 1 = (ln ln 1 ) (*) Scatter chart of leverage changes against unit VaR changes should have slope 1. Evidence?

30 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity Q1 Unit VaR Growth Q Q Q Q Q Q Leverage Growth Five (then four, three, then two) Wall Street banks, Adrian and Shin (2011)

31 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity Unit VaR 15 VaR/E 10 Leverage 5 0 Pre-Crisis Standard Deviations -5 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Jun-05 Dec-04 Jun-04 Dec-03 Jun-03 Dec-02 Jun-02 Dec-01

32 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity Unit VaR 15 Implied Vol CDS Spread Pre-Crisis Standard Deviations -5 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Jun-05 Dec-04 Jun-04 Dec-03 Jun-03 Dec-02 Jun-02 Dec-01

33 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 32 Turning Credit Risk Model on Its Head Vasicek one factor credit risk model (backbone of Basel) Turn Vasicek model on its head as credit supply model Fix. Determine credit supply = 1 1+ (0 1) 1+ ( ) is ratio of notional assets to notional debt [ is normalized leverage measure, with (0 1)]

34 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 33 Credit Supply Notation for balance sheet of bank Bank E 1 r C L 1 f

35 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 34 Borrower repays the loan when 0 = Φ 1 ( )+ + p 1 where { } independent standard normal ³ p Pr ( 0) = Pr + 1 Φ 1 ( ) Realized value of assets at date 1 = Φ Φ 1 ( ) = ( ) (1 + ) Pr ( 0 ) ³ p = (1+ ) Pr + 1 Φ 1 ( ) ³ Φ 1 ( ) = (1+ ) Φ 1

36 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 35 density over realized assets ρ = 0.3 ε = 0.3 ε = 0.2 ε = z density over realized assets ε = 0.2 ρ = 0.3 ρ = 0.01 ρ = z Figure 21. The two charts plot the densities over realized assets when (1 + ) =1. The left hand charts plots the density over asset realizations of the bank when =0 1 and isvariedfrom0.1to0.3. The right hand chart plots the asset realization density when =0 2 and varies from 0.01 to 0.3.

37 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 36 c.d.f. of ( ) = Pr( ) = Pr 1 ( ) = Φ 1 ( ) µ µ 1 = Φ Φ 1 ( )+ p µ 1 Φ 1 (1 + ) Value-at-Risk (VaR) rule with insolvency probability to 0 when notional liability is (1 + ). Private credit determined from à Pr ( (1 + ) ) =Φ Φ 1 ( )+ 1 Φ 1 (1+ )! (1+ ) =

38 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 37 Notional liabilities Notional assets = µ (1 + ) Φ 1 (1 + ) = Φ ( ) Φ 1 ( ) 1 (1) where ( ) Φ ³ Φ 1 ( ) Φ 1 ( ) 1

39 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 38 Supply of Credit Credit supply and demand for funding is obtained from (1) and balance sheet identity = + = = Aggregation holds due to proportionality Leverage = Risk premium is well-defined Risk premium =(1 )(1+ ) 1

40 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 39 r 1 f 1 C r / E 1 1 f Supply of credit Credit Supply

41 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 40 Double-decker model of Global Liquidity Regional Bank Global Bank E R E G 1 r C L 1 f L M 1 i Figure 22. Regional and global bank balance sheets

42 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 41 Diversified loan portfolio from region k Regional bank in k Diversified loan portfolio across regional banks Global bank j Borrower j in region k Borrowers Regions k Figure 23. Global and regional banks

43 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 42 Global, Regional and Idiosyncratic Risk Factors Regional bank defaults when Φ 1 ( )+ + p 1 = p + p 1 1 ((1 + ) ) = 1 ³Φ 1 ( )+ p 1 Φ 1 ( ) Or when 0 Φ 1 ( ) p 1 Φ 1 ( ) = p + p (1 ) Φ 1 ( ) p 1 Φ 1 ( )

44 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 43 Asset realization is deterministic function of global risk factor ( ) = (1+ ) Pr ( 0 ) µ = (1+ ) Pr Φ 1 ( )+ q 1 Φ 1 ( ) (1 ) 1 µq = (1+ ) Φ 1 Φ 1 ( )+ 1 Φ 1 ( ) (1 ) Quantiles follow from the c.d.f. of ( ). ( ) = Pr( ( ) ) = Pr 1 ( ) = Φ 1 ( )

45 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 44 where 1 ( ) = q 1 Φ 1 ³ (1+ ) + Φ 1 ( )+ 1 Φ 1 ( ) (1 ) Global bank Value-at-Risk (VaR) rule with insolvency probability 0. Notional liability of the global bank is (1 + ). = Pr( ( ) (1 + ) ) µq ³ 1 = Φ Φ 1 (1+ ) (1+ ) + Φ 1 ( )+ 1 Φ 1 ( ) (1 )

46 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 45 Notional liabilities Notional assets (1 + ) = (1 + ) µ Φ 1 = Φ ( ) Φ 1 ( ) 1 Φ 1 ( ) (1 ) ( ) Cross-border loan supply =

47 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 46 f L D f 1 i 1 1 r 1 / 1 L S f 0 E G L i Figure 24. Equilibrium cross-border lending

48 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 47 Capital Flows and Domestic Credit Market clearing for Private credit = = Total private credit = Aggregate bank capital (regional + global) 1 spread regional leverage global leverage

49 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 48 Risk premium in recipient economy (1 )(1+ ) 1 Equilibrium stock of cross-border lending = Total crossborder lending Global and weighted regional bank capital = 1 spread regional leverage global leverage

50 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 49 Comparative Statics Effect on capital flow of shifts in (demand pull) and (supply push) ' + = = 1 + Ã (1 ) ( + )( ) (1 ) 2 Banking sector capital flows (i) increase with (bank ROE) (ii) increase with bank leverage (fall with VIX) (iii) increase in change in bank leverage (fall with VIX) (iv) fall with interaction between ROE and VIX!

51 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 50 Sample Sample of 47 countries with largest foreign bank penetration (Claessens, van Horen, Gurcanlar and Mercado (2008)) Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Indonesia, Ireland, Israel, Italy, Japan, Latvia, Lebanon, Lithuania, Malaysia, Malta, Mexico, Netherlands, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom and Uruguay.

52 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 51 Variable Frequency Obs Mean Std. Dev. Min Max External Loans Growth quarter VIX quarter VIX quarter Interoffice Assets Growth quarter Interest Spread quarter Private Credit Growth year VIX year Interoffice Assets Growth year Interest Spread year Money Stock year Global Growth year ROE year Openness year Bank Crisis year Inflation year Creditor Rights year

53 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 52 Three Stages Once Again Regional Bank Global Bank A L A L Local Borrowers Stage 3 Stage 2 Stage 1 Wholesale Funding Market Figure 25. Three stages of cross-border banking sector flows.

54 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 53 Three Regressions Funding of Global Banks (quarterly) Interoffice = + VIX + Spread + Controls + Capital Flows (fixed effects panel, quarterly) = Interoffice + 2 VIX VIX ROE + 5 VIX 1 ROE + controls + Domestic Private Credit (fixed effects panel, annual) = Interoffice + 2 VIX ROE + 5 VIX 1 ROE + controls +

55 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 54 Regression for Interoffice VIX ** * ** [0.036] [0.070] [0.015] Interest Spread [0.159] [0.627] [0.755] Money stock [0.546] Global Growth [0.411] Constant *** ** *** ** [0.002] [0.025] [0.009] [0.014] Observations R-squared

56 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 55 panel regression Interoffice *** *** *** *** *** [0.000] [0.000] [0.000] [0.000] [0.000] VIX *** *** *** *** *** [0.000] [0.000] [0.000] [0.001] [0.000] VIX *** [0.005] [0.437] [0.397] [0.130] [0.105] ROE *** *** ** [0.001] [0.002] [0.011] ROE*VIX *** *** ** [0.003] [0.004] [0.014] Interest spread [0.241] [0.434] [0.231]

57 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 56 panel regression continued Money stock *** *** [0.000] [0.000] Global growth ** [0.493] [0.033] Openness ** [0.038] [0.131] Bank crisis *** [0.000] Observations 2,572 2,572 2,572 2,572 2,572 2,572 2,572 R-squared Countries

58 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 57 panel regression Interoffice *** *** ** ** ** ** [0.000] [0.004] [0.034] [0.039] [0.050] [0.013] VIX *** *** ** ** ** ** [0.000] [0.001] [0.014] [0.016] [0.027] [0.049] ROE [0.607] [0.628] [0.901] [0.944] ROE*VIX [0.621] [0.631] [0.916] [0.867] Interest Spread ** [0.599] [0.654] [0.351] [0.034] Money stock ** [0.931] [0.198] [0.041]

59 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 58 ( panel regression continued) Global growth * [0.443] [0.086] [0.218] Openness [0.188] [0.480] [0.808] Inflation *** *** [0.000] [0.000] Bank crisis *** [0.005] Creditor Rights *** [0.002] Observations R-squared Countries

60 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 59 Individual Country Effects Separate panel regressions for each country: = VIX VIX 1 Country + 3 Interoffice + controls + = Interoffice + 2 Interoffice Country + 3 VIX 1 + controls + Sum measures the total effect on country c. incremental country-specific effect. 2 measures

61 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 60 sum=0 sum=0 2 VIX*Estonia *** Reject Interoffice*Estonia *** Reject [0.000] [0.000] 2 VIX*Latvia *** Reject Interoffice*Latvia *** Reject [0.000] [0.000] 2 VIX*Lithuania *** Reject Interoffice*Lithuania *** Reject [0.000] [0.000] 2 VIX*Romania *** Reject Interoffice*Romania Reject [0.000] [0.316] 2 VIX*Turkey *** Reject Interoffice*Turkey Reject [0.002] [0.404] 2 VIX*Brazil *** Reject Interoffice*Brazil *** Reject [0.000] [0.003] 2 VIX*Chile *** Not Reject Interoffice*Chile *** Not Reject [0.000] [0.000] 2 VIX*Spain *** Reject Interoffice*Spain ** Reject [0.000] [0.027] 2 VIX*Ireland *** Reject Interoffice*Ireland Reject [0.001] [0.912]

62 Bruno and Shin: Capital Flows, Cross-Border Banking and Global Liquidity 61 2 VIX*UK Reject Interoffice*UK Reject [0.827] [0.924] 2 VIX*Germany *** Not Reject Interoffice*Germany ** Reject [0.000] [0.015] 2 VIX*France Reject Interoffice*France Reject [0.251] [0.529] 2 VIX*Italy *** Reject Interoffice*Italy Reject [0.000] [0.739] 2 VIX*Australia *** Reject Interoffice*Australia ** Reject [0.001] [0.019] Constant Y Y Controls Y Y Observations Number of countries 47 47